Just as countries compete in a world-wide market where goods and services are
exchanged, they also compete in the market for people. The U.S. accepted about 600,000
legal immigrants annually during the 1980s, not including the 2.5 million persons who
applied for amnesty under the provisions of the 1986 Immigration Reform and Control Act.
Including illegals, more immigrants were admitted during the 1980s than in any other
decade in American history.

By presenting a specific set of economic opportunities, and by pursuing an immigration
policy that prevents the entry of some persons but encourages the entry of others, the
U.S. makes a particular type of offer in the "immigration market." The evidence
is clear that the American offer is becoming progressively less attractive to the world's
most talented people.

Since the immigration reforms of 1965, U.S. immigration law has encouraged family
reunification and discouraged the arrival of skilled immigrants: 75% of legal immigrants
in 1987 were granted entry because they were related to an American citizen or resident,
while only 4% were admitted because they possessed useful skills. As a result, the skills
of immigrants entering the U.S. have declined sharply over the past few decades relative
to the skills of natives. Newly arrived immigrants admitted in the late 1950s had about
half a year more schooling than natives did and earned about 8% less per hour. Immigrants
admitted in the late 1970s had 0.7 fewer years of schooling and earned about 17% less than
natives.

The U.S. competes for immigrants with several other countries, but its main rivals are
Australia and Canada. Among them, these three countries account for two-thirds of the
world's legal immigration. But since 1965, Australia and Canada have succeeded better in
drawing the most talented immigrants. While the predicted lifetime earnings -- the best
indicator of the value of the technical and intellectual skills that immigrants bring with
them -- of the immigrants who entered the U.S.in the late 1970s were 30% lower than those
of American natives, immigrants to Canada who arrived in Canada during that period are
projected to earn only 13% less than Canadian natives. Late 1970s immigrants to Australia
will likely earn about the same as Australian natives.

By contrast, those immigrants who arrived in the U.S. in the early 1960s will have
lifetime earnings just 7% below those of natives -- a figure exactly to the performance of
contemporary immigrants to Australia and only very slightly worse than the 3% less that
early 1960s immigrants to Canada will earn.

The flagging performance of immigrants to the U.S. is due in part to the changes in
their national origins. The national origin groups that dominate the immigrant flow today
do relatively less well in the labor market than the groups that dominated earlier flows.
For instance, the predicted lifetime earnings of immigrants from Canada, Germany or
Britain are about 20% higher than those of natives; immigrants from India or Korea earn
about 7% less than natives; and immigrants from the Dominican Republic, Jamaica or Mexico
earn 30% to 40% less than natives.

One ready explanation for these disparities is that the skills of workers originating
in advanced, industrialized economies are more easily transferable to the U.S. labor
market than are the skills of persons from less developed countries. But a subtler cause
is at work too: It is the most skilled workers who wish to leave such countries as Sweden
and Britain.

Because of the wage structure and redistributive income policies in the European social
democracies, the income gap between the highly skilled and the less skilled is small.
Highly skilled workers are not well rewarded and the less skilled are protected from poor
labor market outcomes. This creates an incentive for those highly skilled people to
emigrate. In poor countries, on the other hand, the wage gap tends to be very large, and
it is the less skilled who have the most incentive to leave.

The problem with unskilled immigrants is not, as is often supposed, that they reduce
the living standards of native workers. A 10% increase in the number of immigrants
decreases the average native wage by at most two-tenths of 1%, and has little effect on
the unemployment rate of practically all native groups, including the black poor.

In fact, even a large and unexpected increase in the supply of immigrants -- such as
the arrival of 125,000 Cubans into the Miami area during the 1980 Mariel boatlift -- does
little harm to native earnings and employment. The trend in the wages and unemployment
rates of both black and white natives in Miami over the 1979-1985 period differs little
from the trends observed in a number of comparable cities, none of which received anything
like the Miami influx.

But though unskilled immigration doesn't deprive natives of jobs or wages, it does have
other costs. The poverty rate of newly arrived immigrants admitted in the late 1960s was
five percentage points higher than that of natives, while the poverty rate of immigrants
admitted in the late 1970s was 18 percentage points higher. Similarly, immigrant
households admitted in the late 1970s are about two percentage points likelier to receive
public assistance than immigrants who arrived in the early 1960s.

The differences in poverty and welfare recipiency rates among national origin groups
are huge. Only 7% or 8% of the immigrants from Britain or Germany are living below the
poverty line, but 14% of Koreans, 26% of Mexicans, and 34% of immigrants from the
Dominican Republic are. The native poverty rate is 12%. Similarly, only 5% of German and
British households are on welfare, but 10% of Filipino households, 17% of Cuban households
and 26% of Dominican households receive public assistance. Eight percent of native
households live on welfare.

The shift toward a more unskilled immigrant flow increases the burden of income
transfer programs. There really is a fundamental conflict between the welfare state and
immigration. Before welfare benefits became widely available in the 1960s, prospective
immigrants to the U.S. would make their decision based on a comparison of the economic
opportunities available to them here and in their country of origin. Now they compare
welfare opportunities too. Without welfare, the U.S. could open its borders entirely,
knowing that those who were needed would stay, while those who weren't would probably
leave.

National income and tax revenues are substantially lower than they would have been if
the U.S. had attracted more skilled immigrants. If the people who immigrated in the late
1970s had been as skilled as those who came in the early 1960s, national income would be
at least $6 billion higher and tax revenues would have increased by $1.5 billion per year.

In both Canada and Australia, visas are now allocated through a point system, which
grades visa applicants in terms of educational attainment, age and occupational
background. The presence of relatives in the country is only one factor among many. Canada
and Australia also "sell" visas to persons who have sufficient financial
resources to open businesses and create employment opportunities for natives. But it may
well be, for instance, that the skilled persons who choose Australia or Canada would have
preferred the more favorable tax policies or labor market conditions provided by the U.S.
If American law were different, they might have come here instead.

Of course, a visa allocation system based on the applicant's ability to pay
discriminates against people who lack these financial resources. Similarly, a point system
discriminates against people who lack the favored skill characteristics. Any visa
allocation system, however, is bound to lead to inequities, and the inequities that would
be created by a merit-oriented immigration policy would be no more egregious than those
associated with present or previous immigration policies. Throughout the first half of the
century, the national origins quota system flatly prohibited the entry of Asians; current
policy prevents the entry of most persons who do not have relatives in the U.S.

Immigration policy is inherently discriminatory. It selectively picks and chooses from
the many applicants. It may stress national origin, or skills, or financial resources, or
family ties, or any combination of characteristics that Americans deem economically and
politically desirable, and consistent with the country's values and beliefs. Because there
are only a limited number of visas, the policy has to restrict or prohibit the entry of
many classes of persons. Inevitably, difficult choices must be made.

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Mr. Borjas, a professor of economics at the University of California, Santa Barbara, is
the author of Friends or Strangers: The Impact of Immigrants on the U.S. Economy,
(Basic, 1990).